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Is the online financial trading industry part of the Israeli high-tech?

In recent years Israeli linked companies have taken a leading role in the rapidly growing world of online financial trading. Online financial trading – including predominantly Forex and Binary Options – developed alongside the evolution of the online gaming industry, and has matured into a separate industry.

In most major jurisdictions, online financial trading is now regulated by relevant financial regulating bodies. Despite some growing pains, online financial trading is generally perceived as a legitimate investment tool.

Though online financial trading is focused on financial tools, the players in this market produce innovations in a multitude of areas. Same as in most other online areas, the ability to innovate is a key ingredient to the success of online financial trading companies.

In this regard, some of the Israeli Forex and Binary Option trading platform providers have gained their leading position within the industry thanks to their ability to introduce new solutions for all aspects of their online activities. These solutions include multi-platform operation, online marketing and retention applications, risk management tools and new investment features.

Similarly, Israeli companies have made their mark by practically creating the social financial trading environment, allowing financial traders to liaise and track other financial traders.

Another key driver to innovation in this area is the ever developing regulatory regimes which shape the world of online financial trading. From an almost 'wild west' environment in its early days, Forex and Binary Options are now regulated in many jurisdictions, including the major developed countries.

The emergence and development of regulatory regimes – many of whom still to be harmonized – had a dual effect on the industry. The first and obvious effect is that the industry is constantly required to upgrade its standards to conform to the regulatory demands. The secondary, but not least important effect is that key players are incentivized to implement innovative solutions to meet the ever changing requirements of the regulatory regimes, and thus maintain a leading position within their industry.

Another indication that the online financial trading industry is maturing is the emergence of different classes of players. These include small innovative startups, medium sized companies and bigger players, which occupy substantive positions in the market and its different niches.

The bigger established companies have also drawn the attention of the investors, including the financial markets. The combination of innovation, market position, growth and financial performance makes certain of the better performing companies ideal targets for private equity and public investors.

It is difficult to gauge the actual size of the online financial trading industry in Israel. The challenge is even to identify which companies are actually within this somewhat 'low key' industry. Many of the companies engaged in this industry do not follow the regular path of high-tech ventures; they are often started by entrepreneurs not from within the high-tech scene, are self or 'angel' funded, their Israeli nexus is often understated, and they may grow rapidly, without going through the usual development stages. Reputation and regulatory challenges also contribute to the relatively low profile of this industry.

However, some basic information is available. As of March 2015 the IVC identifies close to 100 active online trading platform companies.

Israeli Online Trading Platform companies are estimated to be employing over 2,800 employees in total. A little over 10% of these companies employ more than 100 employees, but they employ 60% of the employees in the sector.

As mentioned above, companies in this industry do not rely on the financing sources generally available to the overall high-tech industry. Financing rounds by Israeli online trading platform companies seem to be mostly on the low side, representing less than 0.5% of annual capital raised by Israeli high-tech companies:

With the continued push by innovation, the shaping forces of tightening regulatory regimes, the emergence of bigger and better established players, it appears that the Israeli online financial trading industry is destined to continue and grow in the coming years. All these forces – innovation, regulation and growth – are destined to draw growing attention from the investment community, which is bound to have its own contribution on the maturing of this industry.

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